Policy brief
2007 | July 2014
Sean Lewis-Faupel, Yusuf Neggers,
Benjamin Olken and Rohini Pande
Can Electronic Procurement
Improve Infrastructure
Provision?
Evidence from a Large Rural Road
Program in India
In brief
•
Governments spend billions of dollars annually on public procurement. Many
governments have sought to reduce costs by e-procurement, theoretically providing
greater transparency and thus, reducing the potential for corruption through the
collusion of contractors and government officials. It may also lower the costs of
obtaining information about a tender process and automating admin processes.
•
This study examines the impact of e-procurement on the construction of Indian
roads, specifically the price, quality and schedule of road construction.
•
The quality of public works increased after e-procurement was introduced, thereby
providing evidence that e-procurement is associated with better quality outcomes.
•
The mechanism for quality improvement appears to be a change in the composition of
winning contractors, rather than a change in performance conditional on winning a
contract. This provides evidence e-procurement can increase the quality of contractor
selected.
•
E-procurement led to no changes in project cost or project completion time. This
suggests the primary impact of e-procurement comes through selecting higher quality
contractors. E-procurement is associated with an overall increase in procurement
works completed and a reduction in the size of indvidual procurement packages.
•
Policymakers should consider e-procurement as a potential means to increase the
quality of public works and the efficiency of the procurement system. However, caution
should be exercised regarding whether these results are applicable in other countries
given that, in this case, there may have been an existing need to increase tendering activity.
Ideas for growth
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Policy Motivation
“This study
examines the impact
of e-procurement on
the construction of
roads in India”
Governments across the world spend billions of dollars annually on public
procurement. In recent years, many governments have sought to cut costs and
improve infrastructure provision by utilizing systems of electronic procurement,
commonly known as e-procurement. Theoretically, e-procurement provides greater
transparency thereby reducing collusion among contractors and corruption
among public officials. It also may increase efficiency through lowering the costs
of obtaining information about a tender process and automating administrative
processes. Despite the widespread enthusiasm for e-procurement, to date there
is little rigorous evidence of its impact. This study examines the impact of
e-procurement on the construction of roads in India, specifically examining the
effect on price, quality and schedule of road construction.
Policy Impact
E-procurement is one of the most commonly advocated reforms to procurement
systems today, with the governments of many low-income countries pursing such
programs. The results of this research will help governments evaluate the benefits
of switching to an e-procurement system, in addition to potentially informing
governments on how to design such a system to realize such benefits. Switching to a
system of e-procurement may help governments to better select the most qualified
provider in addition to making better use of existing resources to increasing quality
of public infrastructure.
Audience and Dissemination
The key decision-makers targeted by this brief are government officials engaged
in the development and utilization of procurement and e-procurement systems. A
more specific audience will be identified for dissemination once this research agenda
is complete and a full set of policy recommendations can be made.
Implications
After e-procurement was introduced, the quality of public
works increased
“E-procurement is
associated with a
decrease in the
likelihood that a
road construction
project was rated as
unsatisfactory”
Policy brief 2007
|
The analysis provides evidence that e-procurement is associated with a decrease in
the likelihood that a road construction project was rated as unsatisfactory, measured
through randomly assigned quality checks.
The mechanism for quality improvement appears to be a
change in the composition of winning contractors, rather than a
change in performance conditional on winning a contract
A two-stage regression analysis revealed that the changes in quality in procurement
projects was largely due to changes in which contractor is chosen rather than
changes in a contractor’s activities once they are chosen. The evidence suggests that
July 2014 International Growth Centre
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e-procurement resulted in the selection of higher quality contractors.
E-procurement led to no changes in project cost or project
completion time
“The study revealed
that e-procurement
is associated with a
substantial increase
in the total number
of kilometers of
roads tendered in
each state in each
year”
The analysis suggested that there were no changes in the two other dimensions
of projects that the government may care about: prices or completion time. This
suggests that the primary impact of electronic procurement came through selecting
higher quality contractors.
E-procurement is associated with an overall increase in
procurement works completed and a reduction in the size of
individual procurement packages
The study revealed that e-procurement is associated with a substantial increase in
the total number of kilometers of roads tendered in each state in each year. After
e-procurement took effect, the size of the average procurement package decreased
by about 25%. Together, this suggests that e-procurement lowers the cost to the
government of conducting procurement tenders. However, it also suggests that
caution must be used in interpreting the results presented here to ensure that they
were not due to the shifting composition of projects.
Brief Summary of Research
E-procurement in India has not been adopted nationally all at once but gradually
rolled out at the state level. Because of this time variation across different Indian
states, this study is able to separate out the impact of e-procurement from other
changes occurring in the country at the same time through using a difference-indifference estimation strategy. The study focuses on a particular rural road project
known as Pradhan Mantri Gram Sarak Yojana (PMGSY) that began in 2000, funded
by the federal government with specific uniform criteria but executed by each state.
Data was collected from PMGSY websites from 2000 to 2009 to construct a dataset
covering 21 states, which includes information from over 35,000 procurement
contracts.
The paper evaluates bidding, costs, and quality for procurement in states/provinces
before and after adoption of e-procurement, as well as those continuing under
traditional procurement practices. The paper provides evidence that e-procurement
is associated with an increase in tendering activity, entry of higher quality
contractors, and increase in road quality. However, our analysis cannot currently
distinguish between the impacts of greater tendering activity versus e-procurement
on improving road quality. Ongoing work will use bidding data to attempt to
distinguish the two.
“Our analysis cannot
currently distinguish
between the impacts
of greater tendering Implementation
activity versus e-procurement on improv- Based on this preliminary work, policymakers should consider e-procurement as
ing road quality” a potential means to increase the quality of public works and the efficiency of the
public procurement system. Given that this evaluation occurred in a country which
Policy brief 2007
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July 2014 International Growth Centre
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may have had an existing need to increase tendering activity, caution should be used
in assuming that the results here will be replicated in other contexts. The research
team is continuing to work to provide additional evidence on the casual impact of
e-procurement. This ongoing research will provide greater insight to governments
and countries considering implementation of e-procurement programs.
Further Readings
Auriol, E. 2006. Corruption in Procurement and Public Purchase. International
Journal of Industrial Organization. 24(5), 867-885.
Auriol, E., T. Flochel, and S. Straub. 2008. Public procurement and Rent Seeking –
The Case of Paraguay. Working paper.
Bandiera, O., A. Prat, and T. Valletti. Active and Passive Waste in Government
Spending: Evidence from a Policy Experiment. American Economic Review. 99(4),
1278-1308.
Bobnis, G. and L.C. Fuertes. 2009. Does Exposing Corrupt Politicians Reduce
Corruption? Unpublished paper, University of Toronto.
Ferraz, C. and F. Finan. 2008. Exposing Corrupt Politicians: The Effect of Brazil’s
Publicly Released Audits on Electoral Outcomes. Quarterly Journal of Economics.
123(2), 703- 745.
Krasnokutskaya, E. and K. Seim. 2006. Bid Preference Programs and Participation
Highway Procurement Auctions. Working Paper, University of Pennsylvania.
Olken, B. 2007. Monitoring Corruption: Evidence from a Field Experiment in
Indonesia. Journal of Political Economy.
Reinikka, R. and J. Svensson. 2004. Local Capture: Evidence from a Central
Government Transfer Program in Uganda. Quarterly Journal of Economics. 119(2),
679–705.
Tran, A. 2008. Can Procurement Auctions Reduce Corruption? Evidence from the
Internal Records of a Bribe-Paying Firm. Harvard Kennedy School job-market
paper.
Policy brief 2007
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July 2014 International Growth Centre
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About the authors
Sean Lewis-Faupel is a Ph.D. Candidate in Economics at
the University of Wisconsin - Madison. Sean has received
his MSc in Economics from the University of Wisconsin
and has previous experience as a research assistant at the
Harvard Kennedy School of Government.
Yusuf Neggers is a Sustainability Science Fellow at the
Mossavar-Rahmani Center for Business and Government at
Harvard Kennedy School.
Benjamin Olken is an Associate Professor of Economics in
the MIT Department of Economics. He completed his Ph.D.
in Economics at Harvard in 2004. He spent the 2004-2005
year as a post-doctoral fellow at the National Bureau of
Economic Research, and from 2005-2008 was a Junior Fellow
at the Harvard Society of Fellows. His research focuses
on empirical political economy questions in developing
countries, with a particular emphasis on corruption.
Rohini Pande is Mohammed Kamal Professor of Public
Policy at the Harvard Kennedy School of Government.
Pande is an NBER Research Associate. Her research focuses
on the economic analysis of the politics and consequences
of different forms of redistribution, principally in
developing countries. Prior to joining the Kennedy School
she was an Associate Professorof Economics at Yale
University. She has taught at Yale University, MIT and
Columbia. She holds a PhD and MSc in Economics from the
London School of Economics, an MA in Philosophy, Politics
and Economics from Oxford, and a BA in Economics from
St. Stephens College, Delhi University.
July 2014 International Growth Centre
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